Core Competencies - Assignment Example

Core Competencies The purpose here is to explore the possibility that the core competence paradigm (CCP) has something useful to offer to those concerned with the strategic management of cross docking in large firms. Our starting assumption is that there is a prima facie similarity between the CCP and the emerging literature on the strategic management of cross docking on one crucial issue. This issue is the conceptualization of the diversified firm not as a collection of discrete strategic business units (SBUs), but as a collection of SBUs which draw on certain common corporate resources. The CCP argues that corporations can identify core competencies which are firm-specific accumulations of expertise resulting from previous investments and from learning-by-doing. These competencies are seen as longer-lived assets than the particular product-market business units which exploit them. The prescriptive implication which follows is that core competencies become pivots of strategy-making, and that excessive decentralization of control to SBUs can endanger their continued development and value. (Rousell et al, 1991) Comparing this, the 1970s and 1980s were decades which were largely dominated by a trend of decentralization of cross docking policies and control to SBUs in an attempt to ensure that cross docking was market-driven and that innovation success rates would improve. Recently, however, opinion has swung to the view that excessive decentralization has damaged long-term accumulation of technology and reduced effectiveness in the movement of technology skills between SBUs. This has led in turn to a growing emphasis on re-claiming corporate control of some aspects of technology management. Core Competencies (CCs) are composed of bodies of technological expertise (both product and process) and the organizational capacity to deploy that expertise effectively. Thus they are not simply technological in character, they are also organizational. They are embellished and strengthened through continued use (in other words they are subject to positive returns), and are therefore to some extent firm-specific and non-transferable. Indeed, the definition of CCs insists that not only must they give access to multiple markets, and confer specific advantages to customers, but they must also be difficult to imitate. (Dussauge et al, 1992) CCs are not monolithic. They have an internal structure which is composed of a number of capabilities. Thus a CC exists as a specific combination of capabilities. Capabilities are not defined in very great detail but appear to be more disaggregated than competencies and map more closely onto technologically defined domains of knowledge and expertise. The organizational dimension of a CC appears to lie in part in the ability to combine appropriate capabilities into specific competencies. (Lillystone, 1992) Many customers find shopping in traditional department stores stale and unexciting. In an effort to increase profits, many department stores have stressed operating efficiencies by decreasing the number of sales personnel, and have scaled back effective merchandise displays and store decor. These department stores have decreased prices and have tried to compete directly with the discount department stores such as Kmart and Wal-Mart. Department store customers who like the enjoyment of browsing have accordingly found fewer reasons to browse and fewer reasons to make purchases in department stores. Such department stores were unable to decrease costs sufficiently to profitably match discount department store prices. Changing environmental factors have made price strategies more important to consumers. Price-conscious consumers have in the past decade become more attracted to discounters and factory manufacturers outlets. Enclosed shopping malls that are air-conditioned and protect against inclement weather conditions have grown in popularity. Department stores were once viewed as the leading one-stop shopping institutions. But, in recent years, shopping malls, composed of countless specialty stores with great depth and breadth of product assortment, have been perceived as comprehensive one-stop shopping centers replacing the traditional department store. The idea of mass markets once served by department stores has been replaced by market segmentation strategies. Retail organizations are narrowing their focus and targeting specific consumer segments. (Alan and Michman, 1995) Competencies are given a physical and commercial reality in core products, which have a market-leading performance in a specific area of the customer’s functionality requirements. The often quoted examples here are Canon’s laser-printer engines, and Honda’s high revving, smoothly performing internal combustion engines. Core products are then deployed in a variety of end-products. The principle of a variety of technologies (capabilities), being combined in many permutations to create a variety of end-products is not in itself new. The specific feature of the CC paradigm seems to be the emphasis on the intervening concepts of CCs and core products. These are, in essence, particular combinations of capabilities, which are robust over time, confer specific advantages to the supplier and the customer, and therefore create a preferred and firm-specific migration path from technological knowledge to end-products for the firm in question. Once this is recognized by a firm, it is then argued that it can use its CCs as an ‘orientation device’ to shape strategic choices about acquisition of new technologies and development of new end-products. (Krause and Liu, 1993) Basically, if a technology strengthens your CCs you should acquire it, and if a product exploits your CCs, you should make it. This approach seems to create a need within the company for intelligence and forecasts concerning technical trends and market trends, in order to ‘steer’ the evolution of the CCs. (Anderson and Tushman, 1990) Some of the practical implications of this perspective are defined by contrasting the CC paradigm with an outlook based on seeing a corporation as a collection of more or less autonomous SBUs. It is pointed out that a business run as a portfolio of SBUs is in danger of dissipating CCs, or even of inadvertently outsourcing them. CCs can get ‘imprisoned’ within one SBU and not be made available to other SBUs. The people who are the embodiment of the CCs can be insufficiently mobile with respect to the SBUs. Population shifts to the suburbs have also caused decline in traditional department store patronage. Many chain department stores have experienced a blurring of their image in branch and suburban stores that serve different consumer segments. Part of this problem has been caused by deterioration in customer services. Even credit card services have changed as the bank Visa and Master Card have become more acceptable. Meanwhile, the department stores still have the high costs of administering their own credit cards. (Alan and Michman, 1995) It is clear then, that in the context of large multiproduct firms, the concept of CC is designed to act as a representation of the overlaps and synergies between products. (Rothwell, 1992) These overlaps and synergies are what make the diversification pattern of the firm rational rather than random, and in addition, they make the firm capable of specific differentiations of its products which confer competitive advantage. Without the use of CCs a firm’s products are less likely to be competitive, and less likely to add new cumulative skills to the firm’s armory. (Coombs and Richards, 1993) For over twenty years Britain’s leading cross docking-performing firms have been progressively modifying and adjusting their policies with the enduring intention of making their cross docking activity market-driven, and integrated into the business strategies of the business units which the cross docking serves. This trend is wholly consistent with the received wisdom about what makes for successful innovation. The outcomes of this are complex; some prominent features are as follows: 1. Where firms have corporate cross docking labs, the balance of their policies has shifted from corporate to business-unit sources, which are more closely monitored through customer-contractor relationships. 2. Many corporate labs have either shrunk absolutely, or have reduced in relative importance within the total cross docking effort of a company. This is reflected in the growth of decentralized cross docking at division or business-unit level. This tendency has been fuelled by mergers and acquisitions which have brought previously separate cross docking facilities under one corporate parent. These divisional or business-unit level cross docking facilities are by definition market-driven, and do not have a brief to undertake work outside the business areas of their controlling division. (Goold and Campbell, 1987,) 3. This decentralization of cross docking has permitted new and more intimate arrangements to develop which bring technical, commercial and operations staff together at business-unit level in effective teams for product and process innovation. This is a major historical gain for Wal-Mart outlets, and should not be underestimated. However, there are also a number of negative consequences that have arisen from this decentralization of cross docking, which have been aggravated by other contextual features: 1. Business-unit ‘ownership’ of cross docking is very effective at consolidating strength within the existing technological regime applying in that company at that time. If that regime is a competitive one, all well and good. If the technological regime of the company becomes less competitive, the business-unit ownership of cross docking could run the risk of digging a deeper hole for the company. (Prahalad and Hamel, 1990) 2. If new ‘generic’ technologies emerge which are ‘competence-destroying’ for such business units (e.g. new materials technologies which render existing manufacturing processes obsolete), their cross docking infrastructure may not be able to cope. This has been a feature of the 1980s and the 1990s. The natural place to look for a compensating source of technical competence in these circumstances is the corporate parent and its cross docking capacity, which will generally be oriented to longer term strategic research. But, for a significant proportion of Wal-Mart, this corporate competence is weak. The weakness at corporate level arises from two principal sources. 1. First, the process of decentralization within a flat or slow-growing total cross docking-policies regime has weakened both competencies and organizational influence of corporate cross docking. 2. Second, there is an Anglo-Saxon bias toward corporate management styles which are financially-oriented, rather than oriented toward strategic co-ordination of the activities of a portfolio of businesses. The combination of these two factors has meant that the overall technology and skill portfolio of a diversified corporate structure can often become simply invisible to the company. There is no responsible individual or structure to ‘own’ this problem. Consequently there can be serious deficiencies in transferring relevant technical expertise between member divisions of a large corporate structure, and there can be further deficiencies in assuring sponsorship for new technologies which might be relevant to more than one division. (Miyazaki, 1993) What these points add up to is a significant shift in the organizational focus of Wal-Mart cross docking toward products and markets, and away from technologies. This shift is wholly appropriate at the business-unit level, but wholly inappropriate at the level of a collection of business within a corporate structure. It has led to a relative under-performance of Wal-Mart outlets in identifying, adapting to, and commercializing newer technologies which fall outside the established competencies of individual businesses. At the risk of exaggeration, we might say that firms have learnt the lesson of the 1970s—‘innovations are about market-pull and not about technology-push’—rather too well! We can summarize this argument by identifying two paradigms of cross docking organization: one relates to the early days of organized cross docking before the focus on ‘market-driven cross docking’ emerged, and the other captures the ‘market-driven’ philosophy. There is significant evidence, however, that many cross docking managers and chief executives have been trying to correct these problems that have emerged as a result of the shift toward decentralized cross docking. This trend is an interesting and significant one in our view. It represents a considered institutional response to the challenge of new technologies, and could enhance the possibilities for Wal-Mart to move towards the practice of their foreign counterparts on the specific issue of commitment to continuous technological renewal. At the risk of over-simplification we can identify it as a third ‘emerging’ paradigm. Works Cited Alan J. Greco, Ronald D. Michman; 1995 Retailing Triumphs and Blunders: Victims of Competition in the New Age of Marketing Management, Quorum Books Anderson, P. and Tushman, M. (1990) ‘Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change’, Administrative Science Quarterly, (35), pp. 604-633. Coombs, R. and Richards, A. (1993) Research and Technology Management in Enterprises: Issues for Community Policy: Case Study on England, Report issued as part of EC SAST Project No. 8, EUR-15433-EN, Brussels, October. Dussauge, P., Hart, S. and Ramanantsoa, B. (1992) Strategic Technology Management, Wiley Goold, M. and Campbell, A. (1987) Strategies and Styles: The Role of the Centre in Managing a Diversified Corporation, Blackwell. Krause, I. and Liu,J. (1993) ‘Benchmarking R&D Productivity’, Planning Review, Jan/Feb, pp. 17-21. Lillystone, D. (1993) ‘A Review of the Use of Metrics to Measure the Effectiveness of Research and Development’, unpublished M. Sc. Dissertation, Manchester School of Management, UMIST. Miyazaki, K. (1993) ‘The Dynamics of Competence-Building in European and Japanese Firms: The Case of Optoelectronics’, D. Phil. Thesis, University of Sussex. Prahalad, K. and Hamel, G. (1990) ‘The Core Competence of the Corporation’, Harvard Business Review, May/June. Rothwell, R. (1992) ‘Successful Industrial Innovation: Critical Factors for the 1990s’, R&D Management 22(3), pp. 221-239. Rousell, P.A., Saad, K.N. and Erickson, T.J. (1991) Third Generation R&D: Managing the Link to Corporate Strategy, HBS for A.D. Little. Read More